BROADWIND ENERGY, INC., 10-K filed on 2/26/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 30, 2018
Document and Entity Information      
Entity Registrant Name BROADWIND ENERGY, INC.    
Entity Central Index Key 0001120370    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Non-accelerated Filer    
Entity Public Float     $ 28,651,000
Entity Common Stock, Shares Outstanding   15,708,685  
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 1,177 $ 78
Accounts receivable, net 17,455 13,644
Inventories, net 22,670 19,279
Prepaid expenses and other current assets 1,776 1,798
Current assets held for sale   580
Total current assets 43,078 35,379
LONG-TERM ASSETS:    
Property and equipment, net 49,087 55,693
Goodwill 4,993 4,993
Other intangible assets, net 6,602 16,078
Other assets 398 207
TOTAL ASSETS 99,165 112,350
CURRENT LIABILITIES:    
Line of credit, NMTC and other notes payable 11,930 14,138
Current maturities of long-term debt   114
Current portions of capital lease obligations 967 762
Accounts payable 11,618 11,756
Accrued liabilities 3,806 4,393
Customer deposits 23,507 9,791
Current liabilities held for sale 27 30
Total current liabilities 51,855 40,984
LONG-TERM LIABILITIES:    
Long-term debt, net of current maturities 1,408 797
Long-term capital lease obligations, net of current portions 571 941
Other 1,969 3,557
Total long-term liabilities 3,948 5,295
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding
Common stock, $0.001 par value; 30,000,000 shares authorized; 15,982,622 and 15,480,299 shares issued as of December 31, 2018, and December 31, 2017, respectively 16 15
Treasury stock, at cost, 273,937 shares as of December 31, 2018 and December 31, 2017 (1,842) (1,842)
Additional paid-in capital 381,441 380,005
Accumulated deficit (336,253) (312,107)
Total stockholders’ equity 43,362 66,071
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 99,165 $ 112,350
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
CONDENSED CONSOLIDATED BALANCE SHEETS    
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 30,000,000 30,000,000
Common stock, shares issued 15,982,622 15,480,299
Treasury stock, common shares 273,937 273,937
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
Revenues $ 125,380 $ 146,785
Cost of sales 121,684 138,626
Restructuring 631  
Gross profit 3,065 8,159
OPERATING EXPENSES:    
Selling, general and administrative 13,625 13,828
Impairment charges 12,585  
Intangible amortization 1,884 1,764
Restructuring 37  
Total operating expenses 28,131 15,592
Operating loss (25,066) (7,433)
OTHER (EXPENSE) INCOME, net:    
Interest expense, net (1,496) (798)
Other, net 2,355 3
Total other income (expense), net 859 (795)
Net loss before benefit for income taxes (24,207) (8,228)
Benefit for income taxes (205) (5,045)
LOSS FROM CONTINUING OPERATIONS (24,002) (3,183)
LOSS FROM DISCONTINUED OPERATIONS (144) (458)
NET LOSS $ (24,146) $ (3,641)
NET LOSS PER COMMON SHARE—BASIC:    
Loss from continuing operations (in dollars per share) $ (1.55) $ (0.21)
Loss from discontinued operations (in dollars per share) (0.01) (0.03)
Net loss (in dollars per share) $ (1.56) $ (0.24)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC (in shares) 15,468,975 15,053,049
NET LOSS PER COMMON SHARE—DILUTED:    
Loss from continuing operations (in dollars per share) $ (1.55) $ (0.21)
Loss from discontinued operations (in dollars per share) (0.01) (0.03)
Net loss (in dollars per share) $ (1.56) $ (0.24)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-DILUTED (in shares) 15,468,975 15,053,049
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($)
$ in Thousands
Common Stock
Treasury Stock
Additional Paid-in Capital
Accumulated Deficit
Total
Balance at Dec. 31, 2016 $ 15 $ (1,842) $ 378,876 $ (308,466) $ 68,583
Balance (in shares) at Dec. 31, 2016 15,175,767 (273,937)      
Increase (Decrease) in Stockholders' Equity          
Stock issued for restricted stock (in shares) 190,482        
Stock issued under defined contribution 401(k) retirement savings plan     316   316
Stock issued under defined contribution 401(k) retirement savings plan (in shares) 114,050        
Share-based compensation     813   813
Net loss       (3,641) (3,641)
Balance at Dec. 31, 2017 $ 15 $ (1,842) 380,005 (312,107) $ 66,071
Balance (in shares) at Dec. 31, 2017 15,480,299 (273,937)     15,480,299
Increase (Decrease) in Stockholders' Equity          
Stock issued for restricted stock $ 1       $ 1
Stock issued for restricted stock (in shares) 156,472        
Stock issued under defined contribution 401(k) retirement savings plan     685   685
Stock issued under defined contribution 401(k) retirement savings plan (in shares) 330,739        
Share-based compensation     803   803
Sale of common stock, net of expenses     (52)   $ (52)
Sale of common stock, net of expenses (shares) 15,112       15,112
Net loss       (24,146) $ (24,146)
Balance at Dec. 31, 2018 $ 16 $ (1,842) $ 381,441 $ (336,253) $ 43,362
Balance (in shares) at Dec. 31, 2018 15,982,622 (273,937)     15,982,622
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in Thousands
12 Months Ended
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (24,146) $ (3,641)
Loss from discontinued operations (144) (458)
Loss from continuing operations (24,002) (3,183)
Adjustments to reconcile net cash provided by (used in) operating activities:    
Depreciation and amortization expense 9,183 8,999
Deferred income taxes (307) (5,045)
Impairment charges 12,585 80
Remeasurement of contingent consideration (1,140) (1,394)
Stock-based compensation 803 813
Extinguishment of New Markets Tax Credits obligation (2,249)  
Allowance for doubtful accounts (35) 37
Common stock issued under defined contribution 401(k) plan 685 316
Gain on disposal of assets (116) (12)
Changes in operating assets and liabilities, net of acquisition:    
Accounts receivable (3,776) 884
Inventories (2,944) 7,057
Prepaid expenses and other current assets 22 651
Accounts payable 801 (5,287)
Accrued liabilities 553 (4,921)
Customer deposits 13,716 (8,219)
Other non-current assets and liabilities (1,734) (126)
Net cash provided by (used in) operating activities of continuing operations 2,045 (9,350)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Cash paid in acquisition   (16,449)
Sales of available for sale securities   2,221
Maturities of available for sale securities   950
Purchases of property and equipment (2,324) (6,688)
Proceeds from disposals of property and equipment 676 72
Net cash used in investing activities of continuing operations (1,648) (19,894)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from line of credit 141,414 158,856
Payments on line of credit (141,040) (148,009)
Proceeds from long-term debt 2,060 457
Payments on long-term debt (761)  
Principal payments on capital leases (814) (644)
Proceeds from sale of common stock, net of expenses (52)  
Net cash provided by financing activities of continuing operations 807 10,660
DISCONTINUED OPERATIONS:    
Operating cash flows (105) (78)
Net cash used in discontinued operations (105) (78)
Add: Cash balance of discontinued operations, beginning of period   2
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,099 (18,660)
CASH AND CASH EQUIVALENTS beginning of the period 78 18,738
CASH AND CASH EQUIVALENTS end of the period 1,177 78
Supplemental cash flow information:    
Interest paid 1,168 585
Income taxes paid 116 44
Non-cash activities:    
Issuance of restricted stock grants 803 813
Equipment additions via capital lease 650 844
Non-cash purchases of property and equipment $ 64 1,003
Contingent consideration related to business acquisition   2,534
Red Wolf acquisition:    
Assets acquired   26,602
Liabilities assumed   $ 7,619
v3.10.0.1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2018
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Broadwind Energy, Inc. (the “Company”) provides technologically advanced high‑value products to energy, mining and infrastructure sector customers, primarily in the United States of America (the “U.S.”). The Company’s most significant presence is within the U.S. wind energy industry, although the Company has increasingly diversified into other industrial markets. Within the U.S. wind energy industry, the Company provides products primarily to turbine manufacturers. The Company also provides precision gearing and heavy fabrications to a broad range of industrial customers for oil and gas (“O&G”), mining, steel and other industrial applications. With the acquisition of Red Wolf Company, LLC (“Red Wolf”), a Sanford, North Carolina-based, privately held fabricator, kitter and assembler of industrial systems primarily supporting the global natural gas turbine (“NGT”) market in February 2017, the Company further diversified into the business of supplying components for natural gas turbines. The Company has three reportable operating segments: Towers and Heavy Fabrications, Gearing, and Process Systems.

Towers and Heavy Fabrications

The Company manufactures towers for wind turbines, specifically the large and heavier wind towers that are designed for multiple megawatt (“MW”) wind turbines. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. The two facilities have a combined annual tower production capacity of up to approximately 550 towers (1650 towers sections), sufficient to support turbines generating more than 1,100 MW of power. This product segment also encompasses the manufacture of other heavy fabrications for mining and other industrial customers. In the fourth quarter 2017, the segment changed its name from “Towers and Weldments” to “Towers and Heavy Fabrications” to more accurately reflect the nature of the segment’s activities.

Gearing

The Company engineers, builds and remanufactures precision gears and gearboxes for O&G, wind energy, mining, steel and other industrial applications. The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

Process Systems

On February 1, 2017, the Company acquired Red Wolf and as a result, aggregated its Abilene TX based fabrication business with Red Wolf to form the Process Systems reportable segment. This segment provides contract manufacturing services that include build-to-spec, kitting, fabrication and inventory management for customers throughout the U.S. and in foreign countries, primarily supporting the natural gas turbine power generation market.

Liquidity

The Company meets its short term liquidity needs through cash generated from operations, through its available cash balances and through the Company’s Credit Facility (as defined below), first established in October 2016, additional equipment financing and access to the public and private debt equity markets, including the option to raise capital under the Company’s registration statement on Form S-3 (as discussed below). The Company uses the Credit Facility to fund working capital requirements.  Under the terms of the Credit Facility, CIBC agreed to advance funds against a borrowing base consisting of up to 85% of the face value of the Company’s eligible accounts receivable (“A/R”), up to 50% of the book value of the Company’s eligible inventory and up to 50% of the appraised value of the Company’s eligible machinery, equipment and certain real property up to $10,000. Under the Credit Facility, borrowings are continuous and all cash receipts are usually applied to the outstanding borrowed balance. As of December 31, 2018, cash and cash equivalents and short-term investments totaled $1,177, an increase of $1,099 from December 31, 2017, and $11,000 was outstanding under the Credit Facility. The Company had the ability to borrow up to $10,319 under the Credit Facility as of December 31, 2018.

The Credit Facility has been periodically amended since the original transaction closed in 2016 to address changes in business conditions. On January 29, 2018, the Company executed the Third Amendment to Loan and Security Agreement (the “Third Amendment”), which waived the Fixed Charge Coverage Ratio Covenant as of December 31, 2017 and added new minimum EBITDA and capital expenditure covenants through June 30, 2018. Among other changes, the Third Amendment also revised the Fixed Charge Coverage Ratio Covenant to be recalculated for future periods commencing with the quarter ending June 30, 2018.

On May 3, 2018, the Company executed the Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”), waiving the Company’s non-compliance with the minimum EBITDA covenant through March 31, 2018. The Fourth Amendment, among other changes, amended the minimum EBITDA thresholds for the period ending June 30, 2018 and adjusted the definition of EBITDA to add back certain restructuring expenses.

On October 26, 2018, the Company executed the Fifth Amendment to Loan and Security Agreement which, among other things, removed the Fixed Charge Coverage Ratio and capital expenditure covenants as of the period ending December 31, 2018 and added minimum EBITDA covenants through June 30, 2019.

On January 16, 2019, the Company executed the Sixth Amendment to Loan and Security Agreement which increased the Company’s capability to issue letters of credit.

On February 25, 2019, the Company executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), which expanded the Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019 and introduces a Fixed Charge Coverage Ratio thereafter. For a more detailed description of the Amended and Restated Loan Agreement refer to Item 9B of this Form 10-K.

Debt and capital lease obligations at December 31, 2018 totaled $14,876, which includes current outstanding debt and capital lease obligations totaling $12,897, over the next twelve months. The current outstanding debt includes $11,000 outstanding under the Credit Facility.

On August 11, 2017, the Company filed a “shelf” registration statement on Form S-3, which was declared effective by the SEC on October 10, 2017 (the “Broadwind Form S-3”). This shelf registration statement, which includes a base prospectus, allows the Company at any time to offer any combination of securities described in the prospectus in one or more offerings. Unless otherwise specified in the prospectus supplement accompanying the Company’s base prospectus, the Company would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes.

On July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the "ATM Agreement") with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent shares of the Company's common stock, par value $0.001 per share with an aggregate sales price of up to $10,000. The Company will pay a commission to the Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. During the year ended December 31, 2018, the Company issued 15,112 shares of the Company’s common stock under the ATM Agreement and the net proceeds (before upfront costs) to the Company from the sale of the Company’s common stock were approximately $33 after deducting commissions paid of approximately $1. As of December 31, 2018, the Company’s common stock having a value of approximately $9,967 remained available for issuance with respect to the ATM Agreement.

The Company anticipates that current cash resources, amounts available under the Credit Facility, cash to be generated from operations, additional equipment financing, and any potential proceeds from access to the public or private debt or equity markets, including the option to raise capital under the Broadwind Form S-3, will be adequate to meet the Company’s liquidity needs for at least the next twelve months. If assumptions regarding the Company’s production, sales and subsequent collections from several of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, the Company may in the future encounter cash flow and liquidity issues, which could have a material adverse effect on the Company’s business, financial condition and results of operations. If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility. This could limit the Company’s operational flexibility or require a delay in making planned investments. Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company. While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial obligations and debt covenants, for at least the next 12 months, there can be no assurances that its operations will generate sufficient cash, or that credit facilities or other resources will be available in an amount sufficient to enable the Company to meet these financial obligations. 

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

These consolidated financial statements include the accounts of the Company and entities in which it has a controlling financial interest. All significant intercompany transactions and balances have been eliminated in consolidation. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”).

When the Company obtains an economic interest in an entity, the Company evaluates the entity to determine if the entity is deemed a VIE, and if the Company is deemed to be the primary beneficiary, in accordance with the accounting standard for the consolidation of VIE’s. The accounting standard for the consolidation of VIE’s requires the Company to qualitatively assess if the Company was the primary beneficiary of the VIE based on whether the Company had (i) the power to direct those matters that most significantly impacted the activities of the VIE and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant. Refer to Note 18, “New Markets Tax Credit Transaction” of these consolidated financial statements for a description of two VIE’s that were included in the Company’s consolidated financial statements.

Management’s Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period. Significant estimates, among others, include revenue recognition, future tax rates, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts, workers’ compensation reserves, health insurance reserves, and environmental reserves. Although these estimates are based upon management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from these estimates.

Cash and Cash Equivalents and Short‑Term Investments

Cash and cash equivalents typically comprise cash balances and readily marketable investments with original maturities of three months or less, such as money market funds, short‑term government bonds, Treasury bills, marketable securities and commercial paper. Marketable investments with original maturities between three and twelve months are recorded as short‑term investments. The Company’s treasury policy is to invest excess cash in money market funds or other investments, which are generally of a short‑term duration based upon operating requirements. Income earned on these investments is recorded to interest income in the Company’s consolidated statements of operations. As of December 31, 2018 and December 31, 2017, cash and cash equivalents totaled $1,177 and $78, respectively. For the years ended December 31, 2018 and 2017, interest income was $5.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are presumed to be classified as reductions of revenue in the Company’s statement of operations.

In many instances within the Company’s Towers and Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under these arrangements only when the buyer requests the arrangement, the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

The Company adopted the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, for the fiscal year beginning January 1, 2018 and elected the modified retrospective approach. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 605. Based on the Company’s contract evaluation, the Company determined there was no need to record any changes to the opening retained earnings due to the impact of adopting Topic 606. The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements.

Cost of Sales

Cost of sales represents all direct and indirect costs associated with the production of products for sale to customers. These costs include operation, repair and maintenance of equipment, materials, direct and indirect labor and benefit costs, rent and utilities, maintenance, insurance, equipment rentals, freight in and depreciation.  

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include all corporate and administrative functions such as sales and marketing, legal, human resource management, finance, investor and public relations, information technology and senior management. These functions serve to support the Company’s current and future operations and provide an infrastructure to support future growth. Major expense items in this category include management and staff wages and benefits, share‑based compensation and professional services.

Accounts Receivable (A/R)

The Company generally grants uncollateralized credit to customers on an individual basis based upon the customer’s financial condition and credit history. Credit is typically on net 30 day terms and customer deposits are frequently required at various stages of the production process to finance customized products and minimize credit risk.

Historically, the Company’s A/R is highly concentrated with a select number of customers. During the year ended December 31, 2018, the Company’s five largest customers accounted for 78% of its consolidated revenues and 54% of outstanding A/R balances, compared to the year ended December 31, 2017 when the Company’s five largest customers accounted for 85% of its consolidated revenues and 57% of its outstanding A/R balances.

Allowance for Doubtful Accounts

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to A/R. The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the realizability of its A/R. These factors include individual customer circumstances, history with the Company and other relevant criteria. A/R balances that remain outstanding after the Company has exhausted reasonable collection efforts are written off through a charge to the valuation allowance and a credit to A/R.

The Company monitors its collections and write‑off experience to assess whether or not adjustments to its allowance estimates are necessary. Changes in trends in any of the factors that the Company believes may impact the realizability of its A/R, as noted above, or modifications to the Company’s credit standards, collection practices and other related policies may impact its allowance for doubtful accounts and its financial results. Bad debt (recoveries) expense for the years ended December 31, 2018 and 2017 was $(34) and $80, respectively.

Inventories

Inventories are stated at the lower of cost or market and net realizable value. Cost is determined either based on the first‑in, first‑out (“FIFO”) method, or on a standard cost basis that approximates the FIFO method. Market is determined based on net realizable value. Any excess of cost over net realizable value is included in the Company’s inventory allowance. Net realizable value of inventory, and management’s judgment of the need for reserves, encompasses consideration of other business factors including physical condition, inventory holding period, contract terms and usefulness.

Inventories consist of raw materials, work‑in‑process and finished goods. Raw materials consist of components and parts for general production use. Work‑in‑process consists of labor and overhead, processing costs, purchased subcomponents and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by the Company that will be used to produce final customer products.

Long-Lived Assets

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is recognized using the straight‑line method over the estimated useful lives of the related assets for financial reporting purposes, and generally using an accelerated method for income tax reporting purposes. Depreciation expense related to property and equipment for the years ended December 31, 2018 and 2017 was $7,299 and $7,235, respectively. Expenditures for additions and improvements are capitalized, while replacements, maintenance and repairs that do not improve or extend the useful lives of the respective assets are expensed as incurred. The Company has in the past capitalized interest costs incurred on indebtedness used to construct property and equipment. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. There was no interest cost capitalized during the years ended December 31, 2018 or 2017. Property or equipment sold or disposed of is removed from the respective property accounts, with any corresponding gains and losses recorded within operating income (loss) in the Company’s consolidated statement of operations.

The Company reviews property and equipment and other long‑lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. In evaluating the recoverability of long-lived assets, the Company utilizes a fair value technique accepted by ASC 820, Fair Value Measurement, which is the asset accumulation approach. If the fair value of the asset group is less than the carrying amount, the Company recognizes an impairment loss.

In evaluating the recoverability of long‑lived assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of such assets. If the Company’s fair value estimates or related assumptions change in the future, the Company may be required to record impairment charges related to property and equipment and other long‑lived assets. Asset recoverability is first measured by comparing the assets’ carrying amounts to their expected future undiscounted net cash flows to determine if the assets are impaired. If such assets are considered to be impaired, the impairment recognized is measured based on the amount by which the carrying amount of the assets exceeds the fair value. To the extent the assumptions used in the Company’s analysis are not achieved, there may be a negative effect on the valuation of these assets.

 

 

Warranty Liability

The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions. Warranty liability is recorded in accrued liabilities within the consolidated balance sheet. The Company estimates the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales. The changes in the carrying amount of the Company’s total product warranty liability for the years ended December 31, 2018 and 2017 were as follows, excluding activity related to the discontinued Services segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

 

2018

    

2017

    

 

Balance, beginning of period

 

 

$

581

 

$

671

 

 

Addition to (reduction of) warranty reserve

 

 

 

(350)

 

 

(28)

 

 

Warranty claims

 

 

 

(5)

 

 

(62)

 

 

Balance, end of period

 

 

$

226

 

$

581

 

 

Income Taxes

The Company accounts for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

In connection with the preparation of its consolidated financial statements, the Company is required to estimate its income tax liability for each of the tax jurisdictions in which the Company operates. This process involves estimating the Company’s actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. The Company also recognizes as deferred income tax assets the expected future income tax benefits of net operating loss (“NOL”) carryforwards. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, the Company considers, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause its income tax provision to vary significantly among financial reporting periods.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. In connection with the Tax Act, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information, prepared or analyzed in reasonable detail to complete its accounting for the change in tax law.

 

The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition related to the uncertainty in these income tax positions.

Share‑Based Compensation

The Company grants incentive stock options, restricted stock units (“RSUs”) and/or performance awards (“PSUs”) to certain officers, directors, and employees. The Company accounts for share‑based compensation related to these awards based on the estimated fair value of the equity award and recognizes expense ratably over the required vesting term of the award. The expense associated with PSUs is also based on the probability of achieving embedded targets. See Note 15 “Share‑Based Compensation” of these consolidated financial statements for further discussion of the Company’s share‑based compensation plans, the nature of share‑based awards issued and the Company’s accounting for share‑based compensation.

Net Income (Loss) Per Share

The Company presents both basic and diluted net income (loss) per share. Basic net income (loss) per share is based solely upon the weighted average number of common shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income (loss) per share is based upon the weighted average number of common shares and common‑share equivalents outstanding during the year excluding those common‑share equivalents where the impact to basic net income (loss) per share would be anti‑dilutive.

v3.10.0.1
REVENUES
12 Months Ended
Dec. 31, 2018
REVENUES  
REVENUES

 2. REVENUES  

On January 1, 2018, the Company adopted ASU 2014-09 and 2015-14, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 605. Based on the Company’s contract evaluation, the Company determined there was no need to record any changes to the opening retained earnings due to the impact of adopting Topic 606. The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements.

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by revenue source for years ended December 31, 2018 and 2017:

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

2018

 

2017 (1)

Towers and Heavy Fabrications

$

68,815

$

103,389

Gearing

 

38,376

 

26,006

Process Systems

 

18,319

 

17,390

Eliminations

 

(130)

 

 -

Consolidated

$

125,380

$

146,785

(1)As noted above, prior period amounts have not been adjusted under the modified retrospective method.

Revenue within the Company’s Gearing and Process Systems segments is recognized at a point in time, typically when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The Company measures revenue based on the consideration specified in the purchase order and revenue is recognized when the performance obligations are satisfied. If applicable, the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

For many transactions within the Company’s Towers and Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition. The Company recognizes revenue under these arrangements only when there is a substantive reason for the arrangement, the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in the Company’s statement of operations.

The Company does not disclose the value of the unsatisfied performance obligations for contracts with an original expected length of one year or less.

v3.10.0.1
EARNINGS PER SHARE
12 Months Ended
Dec. 31, 2018
EARNINGS PER SHARE  
EARNINGS PER SHARE

3. EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings per share for the years ended December 31, 2018 and 2017 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 

 

 

2018

    

2017

    

 

Basic earnings per share calculation:

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

$

(24,146)

 

$

(3,641)

 

 

Weighted average number of common shares outstanding

 

 

 

 

15,468,975

 

 

15,053,049

 

 

Basic net (loss) income per share

 

 

 

$

(1.56)

 

$

(0.24)

 

 

Diluted earnings per share calculation:

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

$

(24,146)

 

$

(3,641)

 

 

Weighted average number of common shares outstanding

 

 

 

 

15,468,975

 

 

15,053,049

 

 

Common stock equivalents:

 

 

 

 

 

 

 

 

 

 

Stock options and non-vested stock awards (1)

 

 

 

 

 —

 

 

 —

 

 

Weighted average number of common shares outstanding

 

 

 

 

15,468,975

 

 

15,053,049

 

 

Diluted net loss per share

 

 

 

$

(1.56)

 

$

(0.24)

 

 


(1)   Stock options and restricted stock units granted and outstanding of 862,706 and 579,330 are excluded from the computation of diluted earnings for the years ended December 31, 2018 and 2017 due to the anti‑dilutive effect as a result of the Company’s net loss for those respective periods. 

v3.10.0.1
DISCONTINUED OPERATIONS
12 Months Ended
Dec. 31, 2018
DISCONTINUED OPERATIONS  
DISCONTINUED OPERATIONS

4. DISCONTINUED OPERATIONS

The Company’s former Services segment had substantial continued operating losses for several years, due to low capacity utilization in our gearbox remanufacturing facility and an increasingly competitive environment for field services due in part to increased in-sourcing of service functions by customers. In July, 2015 the Company’s Board of Directors (the “Board”) directed management to evaluate potential strategic alternatives with respect to the Services segment. In September 2015 the Board authorized management to sell substantially all of the assets of the Services segment to one or more third-party purchasers, and thereafter to liquidate or otherwise dispose of any such assets remaining unsold. The Company began negotiations to sell substantially all the assets of the Services segment in the third quarter of 2015. The exit of this business was a strategic shift that had a major effect on the Company; therefore, the Company reclassified the related assets and liabilities of the Services segment as held for sale, which the divestiture was substantially completed in December 2015.

Results of Discontinued Operations

Results of operations associated with the Services segment, which are reflected as discontinued operations in the Company’s consolidated statements of income for the twelve months ended December 31, 2018 and 2017, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

    

 

    

 

2018

    

2017

Revenues

 

 

 

 

$

 3

 

$

151

Cost of sales

 

 

 

 

 

(132)

 

 

(391)

Selling, general and administrative

 

 

 

 

 

(15)

 

 

(57)

Impairment of held for sale assets and liabilities and gain on sale of assets

 

 

 

 

 

 —

 

 

(161)

Loss from discontinued operations

 

 

 

 

$

(144)

 

$

(458)

 

Assets and Liabilities Held for Sale

Assets and liabilities classified as held for sale in the Company’s consolidated balance sheets as of December 31, 2018 and 2017 include the following:

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

    

2018

    

2017

Assets:

 

 

 

 

 

 

Accounts receivable, net

 

$

 —

 

$

11

Inventories, net

 

 

 —

 

 

 9

Total Assets Held For Sale Related To Discontinued Operations

 

$

 —

 

$

20

Liabilities:

 

 

 

 

 

 

Accrued liabilities

 

$

26

 

$

27

Customer deposits and other current obligations

 

 

 1

 

 

 3

Total Liabilities Held For Sale Related To Discontinued Operations

 

$

27

 

$

30

 

v3.10.0.1
RECENT ACCOUNTING PRONOUNCEMENTS
12 Months Ended
Dec. 31, 2018
RECENT ACCOUNTING PRONOUNCEMENTS  
RECENT ACCOUNTING PRONOUNCEMENTS

5. RECENT ACCOUNTING PRONOUNCEMENTS

The Company reviews new accounting standards as issued. Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its consolidated financial statements, except as discussed below.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current guidance. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This ASU became effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, with early adoption permitted. The Company expects to adopt this guidance for leases existing at the date of adoption and expects to recognize a liability and corresponding asset associated with in-scope leases. The Company has commenced identifying its lease population, but is still in the process of determining those amounts to be recognized as liabilities and right of use assets.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), which clarifies the definition of a business. The amendments in this ASU provide a screen to determine when a set (group of assets and activities) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this ASU (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. This ASU became effective for annual reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. The adoption of this ASU had no material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the test for goodwill impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2, which compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill, from the goodwill impairment test. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This ASU will be effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. The Company early adopted this ASU during the second quarter of 2018 and recorded a $4,993 impairment charge as discussed in Note 8 “Long-Lived Assets” of these consolidated financial statements.

v3.10.0.1
ALLOWANCE FOR DOUBTFUL ACCOUNTS
12 Months Ended
Dec. 31, 2018
ALLOWANCE FOR DOUBTFUL ACCOUNTS  
ALLOWANCE FOR DOUBTFUL ACCOUNTS

6. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The activity in the A/R allowance from operations for the years ended December 31, 2018 and 2017 consists of the following:

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended

 

 

 

December 31,

 

 

 

2018

    

2017

Balance at beginning of period

 

 

$

225

 

$

145

(Recoveries) bad debt expense

 

 

 

(34)

 

 

80

Write-offs

 

 

 

(1)

 

 

 —

Balance at end of period

 

 

$

190

 

$

225

 

v3.10.0.1
INVENTORIES
12 Months Ended
Dec. 31, 2018
INVENTORIES  
INVENTORIES

7. INVENTORIES

The components of inventories from operations as of December 31, 2018 and 2017 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2018

    

2017

 

Raw materials

 

$

16,394

 

$

11,945

 

Work-in-process

 

 

5,426

 

 

6,305

 

Finished goods

 

 

2,958

 

 

3,538

 

 

 

 

24,778

 

 

21,788

 

Less: Reserve for excess and obsolete inventory

 

 

(2,108)

 

 

(2,509)

 

Net inventories

 

$

22,670

 

$

19,279

 

 

v3.10.0.1
LONG-LIVED ASSETS
12 Months Ended
Dec. 31, 2018
LONG-LIVED ASSETS  
LONG-LIVED ASSETS

8. LONG-LIVED ASSETS

The cost basis and estimated lives of property and equipment from continuing operations as of December 31, 2018 and 2017 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

 

 

 

 

    

2018

    

2017

    

Life

 

Land

 

$

1,423

 

$

1,423

 

 

 

 

 

 

Buildings

 

 

20,747

 

 

22,998

 

39

 years

 

 

 

Machinery and equipment

 

 

107,469

 

 

103,878

 

2

-

10

 years

 

Office furniture and equipment

 

 

4,387

 

 

4,202

 

3

-

7

 years

 

Leasehold improvements

 

 

8,974

 

 

9,095

 

Asset life or life of lease

 

 

 

 

Construction in progress

 

 

172

 

 

4,138

 

 

 

 

 

 

 

 

 

143,172

 

 

145,734

 

 

 

 

 

 

Less accumulated depreciation and amortization

 

 

(94,085)

 

 

(90,041)

 

 

 

 

 

 

Total property and equipment

 

$

49,087

 

$

55,693

 

 

 

 

 

 

 

As of December 31, 2018 and December 31, 2017, the Company had commitments of $80 and $132, respectively, related to the completion of projects within construction in progress.

 

As a result of the Red Wolf acquisition, the Company added $4,993 of goodwill, which was included in the Process Systems segment. See Note 16, “Segment Reporting” of these consolidated financial statements for further discussion of the Company’s segments. The goodwill represented the excess of the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities as part of the Company’s acquisition of Red Wolf.

 

During the second quarter of 2018, the Company identified triggering events associated with the release of Red Wolf’s final earn-out reserve, Red Wolf’s recent operating results, a reduction in Red Wolf’s major customer’s performance and the delay of new initiatives being implemented. As a result, the Company evaluated the recoverability of the Red Wolf asset group. In accordance with GAAP, the Company compared the carrying value of the Red Wolf asset group to the forecast undiscounted cash flows associated with this asset group. Based on the analysis performed, the forecast undiscounted cash flows exceeded the carrying value and no impairment of this group was indicated or recorded.

 

The Company next compared the carrying value of the Red Wolf reporting unit to the fair value of the Red Wolf reporting unit. The fair value was determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The two main assumptions utilized in the forecast discounted cash flow analysis were the cash flows from operations and the weighted average cost of capital of 18.6%. Based on the analysis performed, the Company determined that the carrying amount of the reporting unit exceeded the fair value and recorded a $4,993 goodwill impairment charge in the second quarter of 2018. The Company utilized a third-party appraisal to validate the results of the analysis.

 

During the fourth quarter of 2018, the Company identified triggering events associated with Red Wolf’s recent operating results, a reduction in Red Wolf’s major customer’s performance and the delay of new initiatives being implemented.    As a result, the Company tested the long‑lived assets associated with Red Wolf for impairment.  The carrying value of the asset group was found to exceed both its undiscounted cash flows and its fair value determined using the asset accumulation approach. The Company relied upon a third-party valuation and determined that the customer relationship intangible asset was impaired, and recorded a corresponding $7,592 impairment charge during the fourth quarter of 2018. The two main assumptions utilized in the valuation were the cash flows from operations and the weighted average cost of capital of 18.5%.

During 2018 and 2017, the Company continued to experience triggering events associated with the Gearing segment’s history of operating losses. As a result, the Company evaluated the recoverability of certain of its long‑lived assets associated with the Gearing segment. The Company relied upon a third-party appraisal and determined that there were no significant changes to the inputs or assumptions used previously. The Company concluded that no impairment to this asset group was indicated as of December 31, 2018 or 2017.

 

Other intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed in 2007 as well as the noncompetition agreements, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf. See Note 21, “Business Combinations” of these consolidated financial statements for further discussion of the Red Wolf acquisition. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 4 to 10 years. 

 

As of December 31, 2018 and 2017, the cost basis, accumulated amortization and net book value of intangible assets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

Remaining

 

    

    

 

 

 

 

    

 

 

 

 

 

    

 

 

    

Weighted

    

 

 

    

 

 

    

 

 

    

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net

 

Average

 

 

 

 

 

 

 

Net

 

Average

 

 

 

 

 

 

 

 

Accumulated

 

Impairment

 

Book

 

Amortization

 

 

 

 

Accumulated

 

Book

 

Amortization

 

 

 

 

 

Cost

 

Amortization

 

Charge

 

Value

 

Period

 

Cost

 

Amortization

 

Value

 

Period

Goodwill and other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

 

$

4,993

 

$

 —

 

$

(4,993)

 

$

 -

 

 

 

$

4,993

 

$

 —

 

$

4,993

 

 

Noncompete agreements

 

 

 

 

 

170

 

 

(54)

 

 

 —

 

 

116

 

4.1

 

 

170

 

 

(26)

 

 

144

 

5.1

Customer relationships

 

 

 

 

 

15,979

 

 

(6,369)

 

 

(7,592)

 

 

2,018

 

6.8

 

 

15,979

 

 

(4,992)

 

 

10,987

 

8.0

Trade names

 

 

 

 

 

9,099

 

 

(4,631)

 

 

 —

 

 

4,468

 

9.5

 

 

9,099

 

 

(4,152)

 

 

4,947

 

10.5

Other intangible assets

 

 

 

 

$

25,248

 

$

(11,054)

 

$

(7,592)

 

$

6,602

 

6.5

 

$

25,248

 

$

(9,170)

 

$

16,078

 

8.8

 

 

Intangible assets are amortized on a straight‑line basis over their estimated useful lives, which range from 6 to 20 years. Amortization expense was $1,884 and $1,764 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, estimated future amortization expense is as follows:

 

 

 

 

 

2019

 

$

812

2020

 

 

812

2021

 

 

812

2022

 

 

812

2023

 

 

786

2024 and thereafter

 

 

2,568

Total

 

$

6,602

 

v3.10.0.1
ACCRUED LIABILITIES
12 Months Ended
Dec. 31, 2018
ACCRUED LIABILITIES  
ACCRUED LIABILITIES

9. ACCRUED LIABILITIES

Accrued liabilities as of December 31, 2018 and 2017 consisted of the following:

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2018

    

2017

 

Accrued payroll and benefits

 

$

2,126

 

$

1,797

 

Accrued property taxes

 

 

 —

 

 

144

 

Income taxes payable

 

 

66

 

 

77

 

Accrued professional fees

 

 

101

 

 

40

 

Accrued warranty liability

 

 

226

 

 

581

 

Accrued self-insurance reserve

 

 

374

 

 

812

 

Accrued other

 

 

913

 

 

942

 

Total accrued liabilities

 

$

3,806

 

$

4,393

 

 

v3.10.0.1
DEBT AND CREDIT AGREEMENTS
12 Months Ended
Dec. 31, 2018
DEBT AND CREDIT AGREEMENTS  
DEBT AND CREDIT AGREEMENTS

10. DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of December 31, 2018 and 2017 consisted of the following:

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2018

    

2017

 

Line of credit

 

$

11,000

 

$

10,733

 

NMTC note payable

 

 

 —

 

 

2,600

 

Other notes payable

 

 

1,882

 

 

1,146

 

Long-term debt

 

 

456

 

 

570

 

Less: Current portion

 

 

(11,930)

 

 

(14,252)

 

Long-term debt, net of current maturities

 

$

1,408

 

$

797

 

As of December 31, 2018, future annual principal payments on the Company’s outstanding debt obligations were as follows:

 

 

 

 

 

2019

    

$

12,045

 

2020

 

 

913

 

2021

 

 

266

 

2022

 

 

114

 

Total

 

$

13,338

 

Credit Facilities

On October 26, 2016, the Company established a $20,000 three-year secured revolving line of credit (the “Credit Facility”) with CIBC Bank USA, formerly known as The PrivateBank and Trust Company (“CIBC”). The Credit Facility was subsequently increased to $25,000 in March of 2017 pursuant to a Second Amendment to Loan and Security Agreement and an Amended and Restated Revolving Note. Under the Credit Facility, CIBC advances funds when requested against a borrowing base consisting of up to 85% of the face value of the Company’s eligible A/R, up to 50% of the book value of eligible inventory and up to 50% of the appraised value of eligible machinery, equipment and certain real property up to $10,000. Borrowings under the Credit Facility bear interest at a per annum rate equal to the applicable LIBOR plus a margin ranging from 2.25% to 3.00%, or the applicable base rate plus a margin ranging from 0.00% to 1.00%, both of which are based on the trailing twelve-month EBITDA. The Company also pays an unused facility fee to CIBC equal to 0.50% per annum on the unused portion of the Credit Facility, along with other standard fees. The Credit Facility contains customary representations and warranties. It also contains a requirement that the Company, on a consolidated basis, maintain a Fixed Charge Coverage Ratio Covenant, along with other customary restrictive covenants. The obligations under the Credit Facility are secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower facility.

On January 29, 2018, the Company executed the Third Amendment to Loan and Security Agreement (the “Third Amendment”), which waived the Company’s non-compliance with the Fixed Charge Coverage Ratio Covenant as of December 31, 2017 and added new minimum EBITDA and capital expenditure covenants through June 30, 2018. The amendment also revised the Fixed Charge Coverage Ratio Covenant to be recalculated for future periods commencing with the quarter ending June 30, 2018.

On May 3, 2018, the Company executed the Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”), which waived the Company’s non-compliance with the minimum EBITDA covenant through March 31, 2018. The Fourth Amendment, among other changes, amended the minimum EBITDA thresholds for the period ending June 30, 2018 and adjusted the definition of EBITDA to add back certain restructuring expenses.

On October 26, 2018, the Company executed the Fifth Amendment to Loan and Security Agreement which, among other changes, removed the Fixed Charge Coverage Ratio and capital expenditure covenants as of the period ending December 31, 2018 and added minimum EBITDA covenants through June 30, 2019.

On January 16, 2019, the Company executed the Sixth Amendment to Loan and Security Agreement which increased the Company’s capability to issue letters of credit.

On February, 25, 2019, the Company executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”), which expanded the Credit Facility to $35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019 and introduces a Fixed Charge Coverage Ratio thereafter. For a more detailed description of the Amended and Restated Loan Agreement refer to Item 9B of this Form 10-K.

As of December 31, 2018, there was $11,000 outstanding under the Credit Facility. The Company had the ability to borrow up to $10,319 under the Credit Facility as of December 31, 2018.

Other

The $2,600 liability associated with the NMTC transaction described further in Note 18, “New Markets Tax Credit Transaction” of these consolidated financial statements is included in the “Line of credit, NMTC and other notes payable” line item of the Company’s consolidated financial statements as of December 31, 2017. During the third quarter of 2018, the loan was extinguished and the Company recorded a gain of $2,249 in other income, net of transaction expenses.

Separately, in 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During 2018, $114 of the loan was forgiven. In addition, the Company has outstanding notes payable for capital expenditures in the amount of $1,882 and $1,146 as of December 31, 2018 and 2017, respectively, with $930 and $804 included in the “Line of credit, NMTC and other notes payable” line item of the Company’s consolidated financial statements as of December 31, 2018 and 2017, respectively. The notes payable have monthly payments that range from $3 to $36 and an interest rate of 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to May 2021.

v3.10.0.1
LEASES
12 Months Ended
Dec. 31, 2018
LEASES  
LEASES

11. LEASES

The Company leases various property and equipment under operating lease arrangements. Lease terms generally range from 3 to 15 years with renewal options for extended terms. Certain leases contain rent escalation clauses that require additional rental payments in the later years of the term. Rent expense for these types of leases is recognized on a straight‑line basis over the minimum lease term. Any lease concessions received by the Company are deferred and recognized as an adjustment to rent expense ratably over the minimum lease term. The Company is required to make additional payments under certain property leases for taxes, insurance and other operating expenses incurred during the operating lease period. Rental expense for the years ended December 31, 2018 and 2017 was $3,654 and $3,378, respectively.

In addition, the Company has entered into capital lease arrangements to finance property and equipment and assumed capital lease obligations in connection with certain acquisitions. The cost basis and accumulated depreciation of assets recorded under capital leases, which are included in property and equipment, are as follows as of December 31, 2018 and 2017:

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

2018

    

2017

 

Cost

 

$

4,354

 

$

2,460

 

Accumulated depreciation

 

 

(951)

 

 

(424)

 

Net book value

 

$

3,403

 

$

2,036

 

Depreciation expense recorded in connection with assets recorded under capital leases was $527 and $295 for the years ended December 31, 2018 and 2017, respectively.

As of December 31, 2018, future minimum lease payments under capital leases and operating leases were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

Capital

    

Operating

    

 

 

 

 

 

Leases

 

Leases

 

Total

 

2019

 

$

1,057

 

$

3,524

 

$

4,581

 

2020

 

 

376

 

 

2,784

 

 

3,160

 

2021

 

 

252

 

 

2,334

 

 

2,586

 

2022

 

 

 —

 

 

2,333

 

 

2,333

 

2023

 

 

 —

 

 

2,213

 

 

2,213

 

2024 and thereafter

 

 

 —

 

 

6,340

 

 

6,340

 

Total

 

$

1,685

 

$

19,528

 

$

21,213

 

Less—portion representing interest at a weighted average annual rate of 5.0% 

 

 

(147)

 

 

 

 

 

 

 

Principal

 

 

1,538

 

 

 

 

 

 

 

Less—current portion

 

 

(967)

 

 

 

 

 

 

 

Capital lease obligations, noncurrent portion

 

$

571

 

 

 

 

 

 

 

 

v3.10.0.1
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2018
COMMITMENTS AND CONTINGENCIES  
COMMITMENTS AND CONTINGENCIES

12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company is subject to legal proceedings or claims that arise in the ordinary course of its business. The Company accrues for costs related to loss contingencies when such costs are probable and reasonably estimable. As of December 31, 2018, the Company is not aware of any material pending legal proceedings or threatened litigation that would have a material adverse effect on the Company’s results of operations, financial condition or cash flows, although no assurance can be given with respect to the ultimate outcome of pending actions. Refer to Note 20, “Legal Proceedings” of these consolidated financial statements for further discussion of legal proceedings.

Environmental Compliance and Remediation Liabilities

The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging. Also, certain environmental laws can impose the entire cost or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owners or operators of the site. These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site. Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites.

In connection with the Company’s restructuring initiatives, during the third quarter of 2012, the Company identified a liability associated with the planned sale of one of the Company’s facilities located in Cicero, Illinois (the “Cicero Avenue Facility”). The liability is associated with environmental remediation costs that were identified while preparing the site for sale. During 2013, the Company applied for and was accepted into the Illinois Environmental Protection Agency (“IEPA”) voluntary site remediation program. In the first quarter of 2014, the Company completed a comprehensive review of remedial options for the Cicero Avenue Facility and selected a preferred remediation technology. In the fourth quarter of 2017, the Company completed the remediation of the Cicero Avenue Facility which was subsequently sold for $583, net of expenses, in the third quarter of 2018. 

Collateral

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations.

Warranty Liability

The Company provides warranty terms that generally range from one to five years for various products and services relating to workmanship and materials supplied by the Company. In certain contracts, the Company has recourse provisions for items that would enable the Company to pursue recovery from third parties for amounts paid to customers under warranty provisions.

Liquidated Damages

In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays. These damages are typically limited to a specific percentage of the value of the product in question and dependent on actual losses sustained by the customer. When the damages are determined to be probable and estimable, the damages are recorded as a reduction to revenue. During 2018 and 2017, the Company incurred no liquidated damages and there was no reserve for liquidated damages as of December 31, 2018.

Workers’ Compensation Reserves

As of December 31, 2018 and 2017, respectively, the Company had $374 and $812 accrued for self‑insured workers’ compensation liabilities. At the beginning of the third quarter of 2013, the Company began to self‑insure for its workers’ compensation liabilities, including reserves for self‑retained losses. The Company entered into a guaranteed workers’ compensation cost program at the beginning of the third quarter of 2016, but still maintains a liability for the trailing claims for the self-insured policy periods. Although the ultimate